EIOPA Consults on Harmonization of Insurance Guarantee Schemes

EIOPA received, on February 11, 2019, the EC call for advice on the review of Directive 2009/138/EC2 (Solvency II). The call for advice covered a broad variety of topics, including all topics that EIOPA has started to work on such as insurance guarantee schemes and macro-prudential policy in insurance. EIOPA will respond to the call for advice in the form of a Solvency II Review Opinion, which will include a holistic impact assessment. The Solvency II Review Opinion will be published for consultation in the fourth quarter of 2019. The advice in this paper will be amended with the input of this consultation process and be included in the Solvency II Review Opinion, which will be submitted to EC. 

The draft advice addresses the following areas of an insurance guarantee scheme:

• Role and functioning—Insurance guarantee schemes should be set up with the primary aim to protect policyholders, such as to pay compensation swiftly to policyholders for their losses in case an insurer becomes insolvent and/or to ensure the continuation of insurance policies
• Geographical coverage—Insurance guarantee schemes should be harmonized in accordance with the home-country principle
• Eligible policies—Insurance guarantee schemes should cover a specific range of life and non-life policies, such as policies where the failure of an insurer could lead to considerable financial or social hardship for policyholders and/or in case of lines of business with a high market share in cross-border business in Europe
• Eligible claimants—Insurance guarantee schemes should cover natural persons as well as micro- and small-size legal entities
• Coverage level—Insurance guarantee schemes should have a harmonized minimum coverage level
• Funding—Insurance guarantee schemes should have adequate funding systems in place; they should, for instance, be funded on an ex-ante basis and, if needed, complemented by ex-post funding
• Disclosure—There should be requirements for adequate, clear, and comprehensive disclosure about the insurance guarantee schemes protection to consumers and policyholders
• Cross-border cooperation and coordination—Respective arrangements between national Insurance guarantee schemes should be in place

Overall, EIOPA is of the view that every member state should have a national guarantee scheme in place for the protection of policyholders in the event of a failure of an insurer, which should meet a minimum set of harmonized features. Therefore, EIOPA calls for the establishment of a European network of national insurance guarantee schemes, which are sufficiently harmonized and adequately funded. Additionally, the proportionality principle should be taken into consideration to avoid excessive burdens on insurers and member states. In this context, a flexible approach for the legal structure and setup of the schemes is important. EIOPA advises to conduct a review at least every five years, after the harmonized framework becomes effective.

Related Links

• Press Release
• Consultation Paper (PDF)
• EC Call for Advice (PDF)

Comment Due Date: October 18, 2019

Keywords: Europe, EU, Insurance, Solvency II, Insurance Guarantee Schemes, Macro-Prudential Policy, Solvency II Review, EIOPA